Federal versus state and local roles in children’s programs

I was recently asked to comment on a report by First Focus, which describes itself as “a bipartisan advocacy organization dedicated to making children and families a priority in federal policy and budget decisions”. This report, released on June 27, 2012, is a lengthy analysis of federal budget resources devoted to children from fiscal year 2008 up through President Obama’s proposed FY2013 budget. The PowerPoint that accompanied the report’s release makes some specific recommendations on how to improve federal investments in children.

The main point of the First Focus report is that the federal government underinvests in children, and that there are political and budgetary threats that may make that underinvestment worse over time. The federal government devotes about 8% of federal spending to children, even under a broad definition of spending devoted to children. With the demise of federal stimulus spending, with budget deficit concerns leading to major cuts in discretionary spending, and with pressure to rein in health care spending that helps children, there are serious threats to even that modest share of federal spending.

This limited investment in children’s programs raises both moral and economic issues. From an economic perspective, as this blog has long argued, underinvesting in high-quality early childhood programs undermines long-run, broad-based job creation and wage generation for the U.S. From a moral perspective, it would seem that children certainly have a moral claim on assistance that will help expand their capabilities.

However, I want to go beyond the purposes of the First Focus organization to consider the following issue: if we want to increase investment in children’s programs, is this more effectively done through expanding federal investment, or state and local investment?

For educational investments, including early childhood education investments, I believe the needed investment will only happen with heavy involvement from state and local governments.  Most of the funds for educational investments have traditionally come from state and local governments. Over 90% of K-12 educational revenues come from state and local governments, not the federal government. With large federal deficits, and increasing health care spending pressures, it seems unlikely that the federal government is going to make major new educational investments in children over the next 10 to 20 years.

Furthermore, it is unclear whether greater centralization of budgetary decisions actually helps increase educational investments. Empirically, when states such as Michigan move educational budget decisions to the state level, the evidence suggests that this probably reduces educational spending.  Centralization makes it less clear to the average voter how their taxes are related to the benefits of educational investments. As most voters are supportive of educational investments, obscuring the link makes it more difficult to expand educational investments.

Finally, for educational investments, we don’t need a dominant federal budgetary position for there to be adequate incentives for government to be involved. As this blog has outlined, a sufficient number of former preschool participants or K-12 students will stick around a state economy for investments in education to pay off for a state economy.

Where federal involvement in children’s programs is definitely needed is for programs whose dominant purpose is income redistribution. We cannot expect state and local governments to invest adequately in programs that only benefit lower-income children (or, for that matter, lower income adults).  Income redistribution efforts by state and local governments are concerned about fears of attracting low-income migrants through higher benefits, and repelling middle-income and upper-income households through the taxes needed to support income redistribution programs.

In fact, much of the federal spending on children highlighted in the First Focus report occurs through income redistribution programs, including Medicaid, Social Security and SSI, and welfare and food stamps. (These 5 programs by themselves are over half of the $284 billion in federal spending in FY 2013 on children identified in the First Focus report.)  There is no way that state and local efforts in these budgetary areas will be anywhere near adequate without substantial and dominant federal involvement.

The policy recommendations made by First Focus appropriately emphasize expanding federal support for some of these income redistribution programs. These recommendations include reauthorizing the Children’s Health Insurance Program (CHIP), and expanding the Child Tax Credit and the Earned Income Tax Credit. (See page 30 of the Powerpoint accompanying the report.)

I would add to this that the federal government has a large and important role to play in ensuring increases in employment and earnings for a broad range of U.S. households.  This includes macro policies that will promote both short-run and long-run job creation.  States can also generate job creation, but there is some tendency for state job creation efforts to focus too much on stealing jobs from other states.

We need expanded investment in children’s programs. But it needs to come from a combination of expanded federal investment, in policy areas where that makes sense, and from grassroots support for expanded state and local investment, in areas such as early childhood education where that state and local investment makes sense.

About timbartik

Tim Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research specializes in state and local economic development policies and local labor markets.
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